AUSTRALIA

IPO hurdles increased

THE Australian Securities Exchange has unwrapped the updated listing rules after a five-month consultation period, which will make it more challenging to float an oil and gas company on the bourse.

IPO hurdles increased

Not that there are many investors interested in speculative oilers at this phase of the cycle, with just a handful of juniors listing since 2013, but an uptick

in the oil price will increase interest in explorers with new ideas.

The new rules include an increase in the net asset test from $3 million to $4 million, which is less than the $5 million level considered, while the market capitalisation test has increased from $10 million to $15 million.

The four-year old asset requirement is supposed to provide investors with greater confidence that a listed company will have sufficient resources to carry on its business for a reasonable period of time, however a $5 million limit was considered too onerous, particularly in the resources and technology sectors.

Further, significantly increasing the requirement could have the unintended consequences of promoting inefficient capital management practices given resource companies could easily pass the $5 million level based on their projects, and that could lead to the failure of fundraising activities.

The ASX was asked to consider a tiered test for resource companies, but declined, saying a level playing field was the best option.

The $10 million financial threshold had not changed since 1999, but a move to double the limit to $20 million was considered too much for the market to support in a single bound.

The ASX formed the view that a $15 million minimum market capitalisation requirement was appropriate and would reduce the impact that a higher requirement could have on the ability of early stage exploration, technology and innovation entities.

There is also a new 20% minimum free float requirement and a single tier spread test requiring at least 300 security holders each holding at least $2000 of securities.

It is the first time the market has brought in a minimum free float requirement, and the change is aimed at demonstrating a sufficient breadth of investor support for an entity's listing and to promote liquidity in the entity's shares.

New audited accounts requirements for assets test entities now require the disclosure to the market of two full financial years of audited accounts for any entity seeking admission and any significant entity or business that it has acquired in the 12 months prior to applying for admission or that it proposes to acquire in connection with its listing.

All companies will need a minimum working capital requirement of $1.5 million.

With the new rules the ASX was hoping to ensure that the market met the principles of quality and integrity, and remained internationally competitive, while not putting in place additional barriers to the listing process which would dampen investment in an extremely competitive market place.

The ASX said the changes would "ensure that the ASX market continues to be a market of quality and integrity, and remains internationally competitive given the continuing trend in cross-border international listings".

It said it took into account the needs to technology, mining and oil and gas companies in making the changes.

The changes will come into force for initial public offers made after December 19.

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